Card Factory plc (CARD) Earnings Call Transcript & Summary

Good afternoon, and thank you for attending our virtual capital markets presentation. Although bringing the refresh strategy to you later than hoped, the key theme remains the same to extend Card Factory's position as the first choice for greeting cards. Before we discuss the strategy, I will cover off the highlights of our trading update released this morning. I'm pleased to report that virtually all of our stores have reopened with store sales exceeding our original post-COVID reopening expectations with like-for-like sales down just over 20% compared to our expectation of a 50% contraction. Footfall is reduced, but the improved performance derives from higher average spend, higher online sales have continued following reopening of stores. Revenues for the first 6 months are expected to be approximately GBP 100 million. And our net debt of GBP 144 million as at 19th of July, is also much improved compared to our original expectations. Here is today's agenda. You will be hearing from the team members who are responsible and accountable for delivering in each area of the plan. There is time for Q&A at the end when all speakers will be available. Although elements of our new strategy may seem familiar, the quality of the detailed planning underpinning it has been very different and the excellence of our operational execution has been and will continue to be strong. We will create a more robust and scalable business, better equipped to take advantage of current and emerging consumer trends. Most importantly, we have a redefined vision to be recognized as the world's best greeting card retailer, the first choice for greeting cards everywhere and for all occasions. Before you hear from members of the leadership team, I will remind you why we can set such an ambitious vision. Card Factory is uniquely positioned as a highly popular retail brand. We have resonant brand meaning standing very clearly for value for money, evidenced by being voted #1 in the U.K. for value for money for 5 consecutive years. Card Factory is so popular because we are simply better than our competitors at what matters most. Each year, our market tracker survey gives an unbiased view from consumers on what we are good at and where we have opportunity to improve against the competition. This year, shoppers rated us #1 in the market on 5 important measures, including wide range of cards, which itself is the biggest driver of retailer choice. These brand attributes translate into a commanding market leadership position. Card Factory sells 1 in 3 greeting cards in the U.K., more than 3x the volume share of Tesco, our nearest competitor. We have an estimated 35% share of the stores channel and 2% share of the online channel. This outstanding performance with customers is underpinned by an advantaged operating model. We design our own cards. These designs are passed to our production team at Printcraft, which then print over 190 million cards a year for Card Factory. From production, cards are then shipped to our own stores and increasingly, those of our partners, both in the U.K. and abroad. Having the majority of our card value chain in-house gives us greater visibility and control, creating a virtuous circle of advantages, which are reflected in superior product quality, market-leading value and strong margins. Operating this vertically integrated model has enabled us to modestly grow share in a market that has faced challenges. Some of which could be foreseen and managed, but also others that could not. We lead in a mildly declining market for cards. This is the core category and driver of transactions. We will share more on the market shortly. We have a larger state of stores. People are physically shopping less and they are shopping in different places as they are on different shopping missions. Our pace in locating or relocating stores has not matched the movement of consumers, who increasingly are shopping in places in which we have no physical presence. Consumers across multiple categories are also moving online with lockdown, providing a further step change in that behavior. Our own focus and consequently growth online has been tentative. Our original decision to adapt the GettingPersonal website rather than develop a unique site for Card Factory was shortsighted. We have been unable to match the competition. We are fixing this now. The balance of births and deaths is overall a net negative factor for our market because people in older age groups tend to give more cards. However, falling volumes in traditional occasions, such as Christmas, are generally being replaced by new and nonstandard occasions favored by younger consumers. On the cost side, we have a model that is relying on store labor, which accounts for more than 20% of net sales. The successive above inflation increment -- increases in national living wage have been challenging, although significant efficiencies have mitigated many of the implied additional costs. We do recognize that this trend will continue for the foreseeable future. Lastly, the devaluation of the pound since 2014 has been significant and contributes to a structurally lower profit level. The historical drivers of sales growth have been material, but we know that the profit performance of the business has stagnated. We operate in a very different macroeconomic market, and we need to do things differently. While moving into a new phase of growth, predominantly centered on 3 major objectives. First, we will extend our compelling card proposition. Although shoppers value the complementary ranges we offer, they overwhelmingly tell us that above all else, we must have the best range of cards at the best prices. This means the right designs and captions in the right shops at the right times, creating the winning card-led retail proposition. Our conviction that we can offer this is backed up by our sector-leading shopper insights. With over 2.5 million transactions a week in our stores, we are best placed to understand and unlock demand. And we'll do this with increasingly consumer and category insight-led decisions. Second, we want to make that Card Factory offer available in more places however and whenever customers choose to shop. Over 3/4 of U.K. adults buy cards and about 55% shop at Card Factory. That leaves a further 20% who do buy cards, but not from us. Our research indicates that the overwhelming reason why they don't shop with us is that they cannot conveniently get to one of our shops. To me, that challenge of even greater convenience, we have multiple channel solutions. We do need more shops. There are parts of the country we do not serve and where our analysis indicates we would be profitable. We also need to sell our products in other retailer shops, accessing additional shopping missions and more local areas. We need to develop and scale our digital proposition in a way that leverages our store estate as a competitive advantage. Also, we are increasingly confident that there is value to be added by exploring opportunities beyond the U.K., particularly in English-speaking markets that have scale. Third, to fulfill these new demand opportunities requires change to our way of operating. Card Factory has been a traditional business with operations geared to support a single profit center. Now that we are diversifying our source of income, we will also diversify our ways of operating in a structured way that exploits our competitive advantages creating a balanced and agile organization that is fit for the future. This is Card Factory's newly refreshed strategy, there are 3 strands, and you'll hear from the team describing some of the key programs within those brands. We will not review every chevron on this page. We want to be as clear as possible about where we see the value opportunities, all of which fit within an overall mission of helping people celebrate their life moments, affordable and available for everyone. I will now hand over to Pierre Hyde, who will provide some critical market context.

Good afternoon. Over the next few minutes, I will explain why Card Factory is well positioned within an attractive and robust market environment, albeit one that is changing, which presents both challenges and opportunities to grow. Greeting cards were first designed and sold in the 1840s in Britain. And they have been ingrained in British culture ever since. Today, greeting card penetration in the U.K. is the highest in the world, with more than 3/4 of U.K. adults buying cards in the last 12 months. Penetration is higher among females than males, but only marginally. Those groups that are less likely to buy greeting cards include those both on lower incomes, those living in London and younger age groups. However, penetration among those groups does still remain above 60%. In terms of the number of cards that people give, this does vary significantly, but there is an overall average of 22 cards per person per annum. A common misconception from those outside the sector is that card giving is in terminal decline, akin to letter writing or traditional media. This is not true. At IPO, we published a research based on OC&C analysis, estimating that 937 million single cards were purchased in the U.K. in 2012. The in 2019, we updated this research and the equivalent figure is 875 million cards. So what we do see is a mild rate of year-on-year volume decline of between minus 1% and minus 2%. That is accentuated for Card Factory because we play mainly in the physical retail part of the market. Consumers are not deserting the category. But they are choosing to buy differently and from different places. And that is less and less in the high speed locations to which we are more exposed. Therefore, Card Factory stores experienced an effective rate of market decline that is more negative, which contributes to their overall underlying volume performance of minus 3% per annum. The impacts of COVID do complicate market trends. As the chart shows, we saw a 5% volume step down in 2020, driven by both availability and demand. However, on a value basis, the market size in 2020 actually increases. That is because of a large scale, but mainly temporary shifts to online purchasing. Our analysis estimates the online share of card volume peaked at 40% to 50% during the lockdown. That's from less than 10% beforehand. We believe this will settle at around 15% to 20%, although that number is highly uncertain and continue to grow. This growth will be at the expense of store sales. To illustrate this, in 2024, we project that 650 million cards will be bought in stores. That's the same number as have been bought in 2020, which, of course, is a year of extreme disruption. This migration from store to online sales is 1 of the 3 major trends that we see in market dynamics. The second of those trends is a change in giving occasions. Driven particularly by younger consumers, we see growth in new and nonstandard occasions. These are a wide variety from increasingly established occasions like thank you teacher and Galentine's Day, to topical or event-driven giving. On the other hand, we do see some traditional occasions such as Christmas in decline. Research done in 2019 showed indicatively from a survey that consumers are giving 1 fewer Christmas card, 1 fewer birthday card, but 1 more card for some other occasion; than they were 5 years ago. The third major shift in market dynamics is in shopping mission. Roughly 80% of cards are planned purchases, but the remainder are bolt-on impulse, an unplanned spontaneous purchase alongside buying some other category. And this is these cards that are in growth. That is driven by a broader migration of retail footfall and arise in convenience. This favors generalist retailers over specialists such as card factory. These are our high level reflections on market trends. However, there are significantly different behaviors among different types of customers. During 2019, Card Factory completed a new ground up, and we believe, sector-leading customer segmentation, placing all U.K. card shoppers into 1 of 10 different segments. This analysis relies primarily on 3 attributes: gender, whether someone has had children and that person's attitude to value. Statistically, we found that these are the strongest drivers of how many cards people buy, how much they spend and where they choose to buy cards. We are rolling out this segmentation into all of our commercial activities. We have also tested the segmentation in Australia, Canada and New Zealand and believe it will have global validity. One of the most powerful uses of the segmentation, is explaining why Card Factory has more success with some segments than others. Take Angie, for example. Angie is Card Factory's traditional heartland shopper. She is female. She has had children, and she's what we call a bargain hunter, which means she puts low prices above everything else when choosing where to buy cards. Our proposition has been extremely well suited to Angie. As such, we have achieved 55% share of this segment by volume. This is also the largest segment in the market, accounting for 17% of card volume. By contrast, Frank is less likely to shop a Card Factory. Frank, like Angie, has had children, but he is male, and he's what we call a casual spender, which means value for money is not even part of the equation when thinking about a low-item value purchase like a card. Instead, Frank is looking for wide range, good availability and assurance that the cards are high quality. Now Card Factory actually performs well on these criteria, but our brand is historically not known for them. As such, you can see there is huge opportunity to drive share of segments like Frank, through transforming perception and driving trial. Thirdly, Ian, who is solely duty driven in his buying. Ian just wants to get the card he wants as quickly and efficiently as possible. And he chooses his retailer accordingly. Now while Card Factory does achieve its fair share of the Ian segments, we do not see this as a target growth opportunity because Ian's lack of engagement in the category restricts his profit potential. So you see how we use our customer segmentation to drive commercial decisions. Notwithstanding these differences between different types of customers, it is clear that card factory has a unique and advantaged position across the U.K. card market. This chart will illustrate that. We have plotted Card Factory and all of its retail store competitors on their shopper ratings; for wide range of cards on the horizontal access and value for money on the vertical axis. The ratings come from our annual market tracker survey, which this year asked more than 2,700 card shoppers about their card purchasing. You can see that the competitors can be grouped. In the bottom right of the chart, we have specialists, such as Clintons and Paperchase. They have strong card ranges, but with the exception of Card Factory, they are expensive. And as such, their appeal was limited to those segments who are not looking for value. By contrast, the discount is in the top left of the chart such as Poundland and Home Bargains, they are the opposite. Although they offer good value for money, they only have narrow card ranges, typically in the bottom price bands. The likes of Frank would be unlikely to find what he is looking for. Thirdly, supermarkets and convenience operators, who are broadly bunched in the middle of the chart, which means they excel on neither wide range nor value for money. And lastly, Card Factory in the top right of the chart. I'm pleased to say that Card Factory is rated top of the entire market for wide range of cards, which is the #1 customer purchasing criterion in the card market. And crucially, Card Factory also offers excellent value for money. This provides a unique position in the market that no competitor comes close to matching. You can see, therefore, that our starting point from a customer and market perspective is strong. To reestablish growth and accelerate share gain, requires us to access growth segments, tap into trends, increased innovation and improved execution. We want to do this first and foremost through driving forward our winning card-led retail proposition and growing like-for-like sales, which I'll now pass over to Adam Jerry to talk to you about.

Thank you, Pierre. The first key thing to stress here is that like-for-like growth in the store estate is the single biggest lever for this business to make more money in the short and medium term. You will shortly hear about some very exciting new growth opportunities. But what I'm going to discuss first on U.K. store performance does deliver the majority of the growth and profit in our plan. I will take you through how we build a winning card-led retail proposition and so doing take significantly more market share. To build the winning proposition, you must build around customers' needs. From the wealth of insight we have, we know that when consumers choose where to buy their cards, the #1 requirement is a wide range of choice, followed by availability of cards. When shopping at Card Factory, customers want to be confident we have an authoritative offer, one that fulfills all their needs on a card-led mission without having to shop elsewhere. Because we have over 25 million customers, selling 300 million cards a year, we have an insight advantage over our competitors. Our nearest competitor, Tesco, is selling 1/3 of our annual volume. So for fully 1/3 of the volume in the market, we see what sells and doesn't sell. We know what wide range of choice means and how to deliver it. And we see for anyone else, the changing trends and what people buy. Using the insights, we have a program of product development that offers newness and innovation at prices that remain true to our core values. For example, all new product development since the turn of the year has delivered double-digit sales improvement compared to the ranges they replaced. This insight driven decision-making is a source of potential advantage that has been largely untapped. When I came into the business, I saw the opportunity to exploit that and be more data-driven in how we run the category. We believe, we can grow market share in each locality our shops are in through making smarter choices about the cards we put on the shelves. To enable this step change in our commercial delivery, the team have been reset and restructured to be customer and category focused in their thinking rather than grouped by job function. We have recruited externally to bring a different level of thinking and improve our commercial analysis with the ultimate goal of restoring growth in the card category. Economically, it is also highly attractive because the card category drives substantial margin benefits with product margin of 84% on average, more than 20 points higher than our other categories. Additionally, the storage and transport requirements are far lower while positively contributing to our made in the U.K. sourcing mix. In terms of the programs, we will execute. We are developing our model store of the future to unlock improved operational and commercial returns. Additionally, and most importantly, we have reviewed the performance of every card in every store to understand the true potential. And there are 4 main levers for growing volume. Firstly, we are optimizing the ranges by looking at vertical performance within existing space. Secondly, we are reviewing horizontal performance to understand the potential for the core sections to increase the return per square foot by growing or reducing their overall macro space. Thirdly, at the same time, we are reviewing the return of our seasonal card ranges to dynamically adjust the timing and allow us to maximize our sales potential as we switch between every day and event ranges. Finally, as part of a full space audit, we are identifying the stores where we have an incorrect split between cards and complementary categories, and we will adjust to improve the store returns. I'm going to focus on 2 of these levers today to show how this approach is already bearing fruit. Visiting stores before I joined, told me instinctively that in putting seasonal cards out too early, we were leaving money on the table. In the weeks before Christmas, our ranges for everyday occasions were stripped right back, and customers weren't able to benefit from our core proposition of a wide range of choice, which went wrong as birthdays happen all year-round and indeed peak in September and October. Anecdotally, customers also complain that we are first on the high street to launch Christmas. Reviewed the exact seasonal space returns for each store and range size and identified opportunities to optimize this. The chart shows 2 lines: the sales density for everyday cards and seasonal cards by day in the run-up to Christmas. As you can see, Christmas cards went out in August, yet they didn't earn their space until far later. For Christmas 2020, we are adjusting this. And the analysis shows we can grow sales density by up to 3x in the affected racks. We can deliver this across all key seasons with up to 7.5 million annual sales benefit. The second example is what I call optimizing vertically. That means within every category, in every size of store, ensuring that the faster sellers are always on display. Again, the analysis showed quite clearly that we were not getting this right with the volume density actually highest in our stores with the most card racks. Why is this? Because we were optimizing for stores that could take the full range. And when cutting down for smaller stores, our process was manual and geared towards operational efficiency rather than maximizing sales. We have made range selection data-driven. Increasingly, we will automate that, meaning that we will optimize vertically in all stores irrespective of size. In early 2020, we launched our new fully optimized [indiscernible] range, pre COVID, and it showed 10% like-for-like growth. In total, the analysis shows again 7.5 million size of price for the annual sites. So in summary, these 2 examples, which together provide 15 million annual sales, show that a more insight-driven approach and the successful relationship between design, buying and merchandise planning is unlocking growth. This will address our underperformance in growing card volumes. The other half of the sales equation is, of course, price. As Paul outlined, some of our key business challenges have been in cost inflation. Historically, the company's policy was to not address this in pricing, instead to maintain pricing in line with our legacy intention to be the lowest priced in the market. Our wide range of single card start at 29p and exit at GBP 1.99, and we remain steadfast to our commitment to be honestly and competitively priced across the entire market. However, we have reviewed the pricing strategy and I can say that our new strategy will increase price to offset cost. As the market leader with more than 3x the card volume of the next competitor, we believe we are a price leader. I see no reason why we cannot increase price to reflect our cost base. Again, to test this theory, we completed a regional trial in 2019 to understand the impacts of moving our 59p cards up to 69p. We sold 30 million cards a year at this price point. The results indicated no overall volume reduction with 98% of sales staying at the new 69p price point, and the remainder trading either up or down. This was net profit accretive. We have now executed a permanent price change to 69p across all stores, which will deliver between 2.5 million to 3 million annual contribution. We've identified our first wave of price changes, and the majority of these changes will be completed by the end of this financial year. In total, 60 million cards will increase in price, providing together a modeled annual contribution uplift of circa 6 million if volume responses are as expected. This is inclusive of the 69p change. This is for the stores only, and we've yet to confirm whether we will be changing any prices online, but the strategic principles are the same across channels. Finally, and crucially, further price increases are anticipated in future years across all product categories, in line with the annual cost inflation that we are expecting. That said, value for money remains at the heart of our vision, and therefore, price movements will be carefully considered to ensure we continue to give the best value to customers. The primary objective of our customers is to shop the extensive range of cards. Our supporting ranges are very popular, too. In the customer data I showed earlier, we are rated #1 in the whole market for complementary categories. However, revealing our offer, it is too fragmented. I believe that through reducing the number of complementary categories we offer, we can better support the depth and excellence in our card offer. The case study for this belief is in the balloon category, where we trialed offering a far deeper and wider range. It's proven extremely popular. And according to supply feedback, we may well be the #1 balloon retailer by volume in the U.K. Analysis of our EPOS data suggests that our balloons now drive their own destination footfall. Our intention is to replicate this success in additional complementary categories to drive sales growth, market penetration and ultimately destination footfall. The narrowing of existing minor categories allows a sharper focus on growing the new ranges, ensuring breadth of choice to gain credibility in the eyes of the consumer. In total, our commercial plan for U.K. stores delivers roughly 3% like-for-like growth per annum, ignoring the distortions of COVID. I've shared some of the most critical drivers of the plan, although there are others such as attracting new customer segments and driving frequency of shop through our sector-leading insights. Kris Lee will now explain how we harness these improvements further by increasing our footprint.

Thanks, Adam. The second part of the strategy is to make our brand and our products available in more places, ensuring we can serve all parts of the market and expand into new markets. I'm going to speak first about our plans for store numbers in U.K. and Ireland, and how we're going to make this state work alongside increasing numbers of retail partnerships. I'll then hand over to Chris, who will go through the detail of the partnerships. And then after that, [ Glenn ], who will cover the e-commerce and multichannel elements. We are often asked why we continue to open stores. We open stores because they deliver fantastic returns; the low CapEx, quick payback and highly profitable channels for Card Factory. Looking at the most recent cohort of stores to reach maturity, after 7 years, these were the ones that were opened in FY '14. There were 47 of them, and we spent GBP 65,000 on average on CapEx. On average, they delivered GBP 644,000 of contribution, near 1,000% return on investment and payback within 24 months. It is true that more recent cohorts are not as high, but the returns on capital are still very compelling. The stores in FY '20 are anticipated over the 7 years to maturity to deliver GBP 350,000 of store contribution. Based on a similar CapEx of GBP 65,000, which is still a 600% return on investment. This has remained fairly consistent over the last 4 years, and these returns also reflect the impacts of foreign exchange and our view in terms of the 7 years and the impact of national living wage. Therefore, as of the 20th of -- sorry, January '20, store estate has delivered GBP 1.1 billion of profit on GBP 62 million of capital investment. Our store estate is also flexible. We've reduced the average lease length down to an average of 2.5 years. And the flexibility ensures we've got the best locations of where footfall has changed to. In addition, in England and Wales, we have security of tenure in terms of those negotiations. In FY '20, 9% annualized rent savings were achieved, and we're assuming further savings post COVID due to the impact on landlords and retailers. With COVID and the strategic review, how many stores are we targeting? Over the next 5 years, we are expecting to close around 70 stores, generally at near their lease expiry. This is based on modeling of footfall trends and wage inflation, including the overlaid impact of COVID. We have very few loss-making stores. Out of the overall store contribution in pound terms loss-making stores make up less than 0.4% of that, even loss makers are generally low thousands. New store openings in FY '21 will be held at 11 and the following 4 years, we expect to open circa 140 stores. We will, of course, keep the estate under constant review, and we'll pursue relocations where appropriate. And so far, in recent times, those relocations have delivered an uplifting contribution of around 7%. We anticipate our net store position to be 1,100 in the U.K. and the Republic of Ireland by 2025. We're also often asked, how can we make money from having more than 1 store in the town. Sometimes this has been through acquisition, and sometimes this has been from us purposely deciding to co-locate within a town. I will lay out how this can work for both us and Card Factory, but also in conjunction with overlay in the retail partnerships, which Chris will describe shortly. An example to consider is Preston. The map provided by [indiscernible] shows the town center, where we have 3 Card Factory stores. In total and around Preston, we have 4 Card Factory stores, 5 Aldis and 1 Matalan store that we trade from. We are planning to close 1 of the 3 city center Card Factory stores on the basis of the store has been in decline due to footfall shifts in the town over time, whilst opening up the fourth store to capture the changing footfall on an out of town retail park just 2 miles from the center. This has delivered strong sales volume of over 387,000 units per annum of cards. We know from our customer research that people will not work more than 10 minutes on average to buy a card. The store we are planning to close is within 3 minutes of another town center store. And we know that we could capture the majority of the sales through the 2 remaining stores, which already have 30% to 50% of that market share. We proactively relocate stores as we assess changes in footfall within towns. For example, new transops, train stations, car parks, new retail parks, and short lease length allows us that flexibility to do so. In addition, there are 5 Aldi stores and 1 Matalan store, as I say, around the Preston area, which have made Card Factory products accessible to customers where it would not make economic sense for us to open further Card Factory stores. In the Aldi example, the shopper is on a different shopping mission. These stores allow us to access the impulse purchase market for the occasional card. Our own analysis shows that partnership sites are not cannibalized into our own stores. And to stress test this, we hired an independent data scientist to validate these conclusions. And the findings were exactly the same. In the case of Matalan, these are large box retail parks that do not always have suitable units for a Card Factory store. But again, it allows us to access more customers alongside each other. Our card market share in the U.K. in the stores channel is estimated up 35% today by volume. Through adding more locations and selling more cards per site due to the commercial initiatives we've outlined, our plan is to grow that share to around 53% by FY '25. This will predominantly be stores with up to 5% to 10% that will come from U.K. retail partnerships. This equates to our card volumes moving from around 285 million to around 350 million by FY '25 I will now hand over to Chris, who will tell you more about the growth of these partnerships.

Kris has illustrated the benefits partnering arrangements can have on our market share in specific locations. I'd like to build on this now, so that how partnerships form an integral part of our growth strategy. Between U.K. and international partnerships, we're targeting annual sales of GBP 75 million by FY '25 to deliver a PBT of GBP 15 million. Access to impulse missions, which accounts for 20% of market volume and is growing, is essential for us to grow market share. Working collaboratively with retailers who currently sell cards or indeed do not sell cards, but have footfall is mutually beneficial. There are a number of grocery, convenience and value retailers in the U.K. that can provide the necessary locations for us to take a greater share of our existing customers' category spend. These routes to market will also allow us access to new customers by making our offering available to them through their existing shopping behaviors. Whilst partnerships have lower sales per distribution point and a lower cash return than our own stores, they do provide incremental profits. We've proven this model at Aldi, where we're currently selling our range of cards in over 500 of their locations and on trial in Matalan. We should not underestimate the insight we have in relation to the U.K. greeting card market, selling 1 in 3 cards in the U.K. This is powerful information which could bring potential partners to the table as to how we can help them achieve a leading position over and above their own competitor sets by working collaboratively to develop a model appropriate to their end customers. When we overlay this insight with our own design capabilities, operating processes and support from our store networks, we're able to compete effectively with other operators in the sector. Our virtual integration, short lead times and agility, together with business efficiencies to drive operating processes, such as merchandising and replenishment, allow us to put forward compelling proposals. These solutions can either be branded or white label. In addition to Aldi and Matalan, we're continuously in discussions with potential partners. The plan assumes we will increase the number of partner locations we operate from, from 517 to over 2,000 by FY '25 as well as the U.S., which has a greeting card market value of 4 billion. There are scalable opportunities. In Canada, with a market value of 400 million, Australia with a market value of 300 million and New Zealand of 50 million. Our aspirations are to develop a strong base to grow from in the U.S. and achieve a market share in excess of 10% in each of the secondary markets. We have discussed greeting cards with retailers in each of these locations, done quantitative research. The research in each market provides clear focus as to which retailers we should target. In Australia, for example, we can say that The Reject Shop, which is the large red bubble is the most likely retailer who is able to adopt a quality-value proposition similar to that of Card Factory in the U.K. being the gray bubble. All the blue bubbles represent other retailers in Australia that currently sell greeting cards. And you can see how the market lacks specialism and differentiation. Across the markets, we have researched, there is a common theme which resembles the U.K. before Card Factory had scale as follows: volumes are broadly flat and to protect the category profitability, prices are increased or product specifications have pulled back. In both cases, the customer is losing out, getting less value year-on-year. These conditions provide a great opportunity for us to disrupt the market with our value-led proposition. And work with partners who already have footfall in this category. Our approach will drive market share gain for our partner retailers. It's in our DNA, disrupting the market is what Card Factory was originally about and it's what took us to have such a strong foothold in the U.K. market. Our desired entry model is to work with retailers that have scale and their desire to grow. The model is similar to that in the U.K. But with the added benefit of tapping into the partners' knowledge and expertise on the ground. We have simple and effective solutions to drive out cost where the partners are able to get involved in merchandising and replenishment. Over 80% of the range needed to support a compelling offering can be met from our existing designs with limited localization. For the right returns, we will consider some CapEx as we did with The Reject Shop. But this is very much CapEx-light when compared to the cost of opening our own stores. We've proven the model in Australia, and this serves as a fantastic case study, and we're in discussions with other potential partners in international markets. On the screen, you'll see a time-lapse video of the concession being built. When we first engaged with The Reject Shop in 2018, they had established card offering and a foothold in terms of market share. This is in a market with very little differentiation among the competitors. The range at best would considered as a wholesale range on offering multiple other retailers, a convenience purchase with a space afforded to the category more in keeping with a destination for card buying. This presented us with a great opportunity, and we were successful in proving we could grow volume materially from an orchestrated and branded concession with an identity for cards exclusive in Australia. The results have been amazing, not just for cards, but also drove a number of adjacent categories within The Reject Shop. Performance appears sustainable and provides a great platform to grow the breadth and depth of our complementary ranges. To give a flavor of how this contract operates, we manage the range of cards. We work with a partner, who operate store replenishment. We manufacture stock based on purchase orders placed, selling to them from both the U.K. and China. They have funded a significant investment in fixtures, and we share the working capital burden proportionately. We're delighted to have rolled out between 48 and 60 linear feet of card racks in all 355 stores over an 8-week period, supported by a joint team with Card Factory colleagues accounted to Australia and their own team. A great start to our 5-year contractual relationship with The Reject Shop and a reference point to support our strategic plans. We've heard today that customer behavior and expectations are changing. One of the key area of focus for us is how we make our products and services available to all, how we evolve our business from selling products via channels to serving customers through a multichannel proposition. The last major milestone in our e-commerce journey was when we launched cardfactory.co.uk on the GettingPersonal platform in 2015. We've -- over the last 4 years, we've seen steady sales growth, but there is significant opportunity for us to grow in this channel. We estimated by the end of 2019, we had 2% of the online card market share, a channel that Moonpig and Amazon leads. In planning to grow our e-commerce sales, we recognize the limitations of our e-commerce platform, everything from the limited customer experience, the digital capabilities and its ability to enable a multi-channel proposition. This year, the COVID lockdown has provided us with insights into what scaling our business could look like. In the 8 weeks from the 23rd of March, we saw 200,000 new customers shop with us, what we'd normally expect to see in 12 months. And looking at these customers, they're a bit different to our existing customer base. While still predominantly female, we've seen higher sales from male buyers. We've also seen higher sales from older customer groups with higher household income and no children. The card shopping mission remains the #1 journey for our customers to visit and purchase at cardfactory.co.uk. With 89% of baskets containing a card, over 1.4 million cards purchased in the 8 weeks. We saw record sales on balloon and party as customers continue to celebrate their birthdays, anniversaries and plus the milestones at home. The record sales resulted in record volume at Printcraft, and this has been challenging in particular, maintaining service levels and operating a safe working environment. To match our growth plans, we will bring forward investment in our fulfillment capacity and Andrew Wasley will come and talk about our plans shortly. Even before lockdown tested our capacity, we recognize the limitation of our current e-commerce platform in terms of the customer experience and the limited digital capability. I am delighted that we've launched cardfactory.co.uk on our new platform, and we launched with a market-leading personalized card offer. We're now offering first-class free delivery on all designs and card sizes on personalized cards. What the customer will see is what they pay, personalized cards from GBP 1.79, including delivery. It provides clear price leadership and a price gap versus our competitors and an unmatched leading delivery offer. Our new website experience will allow our customers to personalize that card through adding text or a photo from their phone or social media account. They can add a personalized message, either their own or choose 1 from Verse Finder, a library of verses at their fingertips. They can send that card anywhere in the U.K. It will be free or anywhere in the world for GBP 1. And they never need to miss a future date by setting up reminders for upcoming birthdays and special events. The new platform will provide the online trading team with the tools to drive conversion and to grow basket, which is currently at GBP 10. Delivering newness and broadening our range is also key to growing our sales. We have clear plans to triple our card range through in-house designs and third-party partnerships to grow our gifting range with a real focus on personalization. We'll make over 1,000 balloon and party products available, including our price leading inflated balloon displays and party packs, will provide greater access to our store range and through launching a range of multi-buy promotions, we'll deliver volume and create further savings for our customers. We're really excited about our new product pipeline and can't wait to see our customers' reaction to them. The GettingPersonal brand, which the group acquired in 2011, specializes in personalized gifts. The business is no longer profitable as an independent business and will now be managed as a complementary brand on the Card Factory platform and take advantage of a shared cost base. We will close the Manchester office and move operations to wakefields this year. By bridging our physical and digital presence, we will add convenience to quality and value to why our customers will want to shop with us. We have exciting plans to give our customers greater control and allowing them to shop their way. By the end of FY '21, our customers will be able to access our offer through our new mobile app. With access to the same ranges, including our market-leading card offer, to locate and to be directed to any store in the U.K. to pay securely and quickly through Apple Pay, Android Pay and PayPal will create a seamless experience across all devices through a single customer account. We have recently launched a click-and-collect pilot, where customers can order balloon displays online and collect from any of our stores in the U.K. The insight gained from these pilots will refine a broader rollout in FY '22. We're also testing customers' appetite to self-serve through 5 in-store kiosk pilots, where customers can print on demand a range of personalized cards. All of this customer data and insights will feed into a new cross-channel retention program. Its purpose is to drive customer engagement, frequency of shop and to build further insight into our customer base. Through the measures I've discussed, we will build an advantaged proposition that makes the most out of our assets, such as our store estate, the vast library of proprietary card designs and our new e-commerce platform. We will also look to increase awareness of our offer through increased marketing activity and spend. Our 5-year plan delivers an increase in the online card market share from 2% to 11% by FY '25. This will drive growth to GBP 60 million net sales in FY '25, contributing 10% of total group sales. 95% of our range is manufactured in-house, driving improvements in margin as well as product quality. As our volume increases, as do the efficiencies, targeting a profit before tax margin in line with our stores. Online and multichannel is targeted to deliver GBP 10 million profit before tax in FY '25. So in summary, our 5-year plan will deliver a dual-branded e-commerce offering as well as launching multichannel propositions that increasingly connect our online and store propositions for our customers. We will serve them profitably and enable them to shop their way.

The third and final section of our strategy is how we will extend the competitive advantages that our vertically integrated model gives us, and how we will continue to invest behind our operating model to ensure we maximize the benefits. I will speak to you about our investments in our in-house production model as well as online fulfillment, and then Paul will address how we will continue to have a lowest cost model. One of Card Factory's unique differences to most of the retailers has been its vertically integrated model. This has continually allowed us to maximize the manufacturing margins within our group and allowed us to develop opportunities historically within our bricks-and-mortar business. This will now be pushed further into other areas of our business now more than ever, with the current challenges we face, we feel it's appropriate to invest in U.K. manufacturing and technology to further secure our supply chain. Vertical integration has allowed us to have control over our costs, and we have invested steadily since Card Factory acquired Printcraft 11 years ago with 2 large years of investment in FY '19 and FY '20 in our print division, totaling GBP 5 million of CapEx. This has put us at the very cutting-edge of print manufacturing technology in our sector and has not only enhanced our greetings card quality and production time scales, but allowed us to maintain our unit manufacturing cost control in a difficult period of material and labor increases. With this new strategy of further card growth within our own store network and also with partnerships in the U.K. and overseas, we have created a plan to continue the successful integration model with further investment in replacement technology, allowing increased cost control in a challenging environment of labor rate increases and skill shortages. The total manufacturing investment will be GBP 17 million of CapEx for the print division over the next 5 years. We have plans to increase our use of robotics to repatriate a potential 60 million cards annually, which are currently produced by overseas suppliers, taking the total volume for Card Factory stores to 75% produced in the U.K. This allows us greater flexibility for shorter lead times and quick reaction to market demands as they emerge. This will then give us an excellent U.K. manufacturing plant to support the strategy. The robotics are currently being trialed with partners we have previously worked with and in our financial estimate, this project will cost GBP 3 million in CapEx and deliver GBP 1 million of annual margin saving by FY '25. You have heard about our planned growth in e-commerce and the unique offering we will have within our sector, and now we'll invest to drive down further our unit cost with automation. We will be doing this with bespoke built investment in sortation, consolidation and fulfillment machinery designed to decrease the reliance on labor and touch points within the process of multiple item fulfillment. We have successfully achieved this in the past in certain areas of our business with equipment we piloted with our Italian partner, CMC, which are now widely used in Amazon fulfillment factories. The focus of our fulfillment has to be on offering a leading-edge service in a value sector and to be able to have a single delivery for multiple items, allowing our model to be unique and most importantly, profitable, in line with current group margins. The challenge has always been to offer a solution that has good payback, but allows growth in modular units as volumes increase in line with our plans. But also has quick flexibility to scale for unforeseen opportunities as we have recently experienced. We are now working with excellent innovators on development of equipment to allow us to deliver this. The payback model will ensure that any CapEx will be recovered within a 24- to 36-month period. Our backbone to the retail stores has always been our own distribution center working alongside 3PL partners, which has worked successfully for many years. Recently, we have completed a further amalgamation of two of our warehouses into a new single-site operation for all complementary categories, enabling the closure of 7 different third-party storage sites and delivering GBP 1.6 million in annual savings and full voice pick automation, allowing us to further reduce our fulfillment and store shipment costs, which save a further GBP 800,000 per annum. This becomes the model to use for further automation and efficiency as our strategy unfolds with other U.K. and overseas partnerships requiring fulfillment. We will continue to look for best-in-class service at a value cost operational model. I will now hand back to Paul to discuss further cost initiatives.

Being the lowest cost operator among comparable businesses is key. We will continue to pursue significant opportunities to drive efficiency throughout the plan which will enable us to materially offset the cost headwinds that we will inevitably face. Although there is not time to go through all of these opportunities now, I will briefly introduce two important initiatives. Firstly, the increasing cost of store labor is a material financial challenge. We are implementing some major changes to the stock model that will release tasks and increase customer-centered activity. Historical investments in EPOS and auto replenishment and a project to deliver line level store stock by the end of FY '21 will underpin a 3-year program to be more efficient with our stock cycle, leading to reduced working capital and increased PBT. Secondly, ERP. Today, we have 3 separate ERP solutions, each heavily customized, supporting a very narrow subset of our business. They are inefficient and depend on manual intervention to be effective. We will move to a single modern ERP solution covering the key areas of our business. We will adopt best practice processes to drive quality and effectiveness whilst driving efficiency. The new ERP system will give us a solid foundation to underpin our 5-year strategy. Implementation will require around GBP 4 million of capital as well as GBP 2 million of incremental revenue cost over the next 3 years. Primarily, this is about risk reduction, although overhead savings of up to GBP 1.5 million per annum are also included in the plan. I should now hand over to Kris Lee, who will summarize the impacts of all that you have heard on the financial performance of the business.

Thanks, Paul. Let me take you through the targeted financials. For the financial metrics, these are the headlines. Revenue growth is targeted at GBP 635 million in FY '25, which includes a disproportionate amount of growth from the new channels of retail partnerships, online and multi-channel, which will comprise around 20% of the revenue. This will come from 5,600 points of distribution. The new retail partnerships will make up the bulk of the distribution points, while Card Factory stores will be 1,100 of them. This provides for market share growth targeted at 45% of the single card volume in the U.K. Underlying profit before tax growth to GBP 105 million. The move to PBT, our profit before tax, rather than EBITDA is due to the more meaningful measure this is post at the implementation of IFRS 16. Low capital absorption, at an average value of GBP 16 million per annum over this 5 years, and the capital policy targeted leverage range remains the same in the medium term, but we will move to a profit before tax basis. That will equate to a post-IFRS 16 of around 1.2 to 2.6x. We'll also be improving the free cash flow by FY '25 targeted at 80% of profit. The sales growth reflects the recovery of the COVID pandemic, with growth in each over the 5-year period as we gain traction from new sale partnerships in the U.K., internationally and online. The store sales of funds grew over this period, but at a more modest level in a more mature market. In FY '25, we expect sales, as I mentioned, to be GBP 635 million and for the first time, we're giving some color around the sales and the profitability. The sales growth includes the assumption that store volumes will continue to decline by 3% per annum, and there'll be a one-off step down due to the impact of COVID of 6%, which mainly represents a channel shift to online. Although FY '21 and '22 financial performances will be impacted by COVID, the COVID-related store closures are anticipated to be a handful. If the sales profile is in line with expectations, we will deliver a profit before tax targeted GBP 105 million in FY '25, with all 3 channels profitably progressing over the 5-year period. Free cash flow is also targeted to improve in FY '25 to circa 80%, with new sales channels being working capital-light and with CapEx averaging GBP 16 million over the period, falling to GBP 12 million by FY '25. The increased CapEx over the 5-year period reflects the higher investment in FY '22 and '23 due to ERP, which Paul has mentioned earlier, and the potential investment in the world's first robotics to improve product margin on handmade cards. Clearly, the first key sales driver for retail stores part of the business is like-for-like sales. This has been underperforming in FY '19 and '20. This has been because of an underlying footfall-driven decline. Adam has already outlined some of the confidence we have in the commercial strategy, how we get this back into growth. As stated previously, we expect to see FY '21 and '22 to be impacted by COVID, but FY '23 onwards, we anticipate average like-for-like sales growth to be circa 3% per annum due to the commercial initiatives, marketing, development of a model store and other anticipated price increases over the period. We will not allow the business to continue to absorb all the inflationary costs. The next driver is growing and diversifying our points of distribution. We are aiming for 5,600 in FY '25 financial plan, which will allow us to serve far more people on far more missions with 3 to 4x the locations. More than 50% of card shoppers who are aware of Card Factory do not shop at Card Factory, say this is because there is not a store conveniently located for them. As the chart shows, the makeup of distribution points will change significantly with our own stores going from majority to the minority. However, our own stores will continue to have a far higher revenue partly due to higher volumes per location and partly because in retail partnerships, we have taken the wholesale value of sales and not the retail value of sales. As you can see in the targeted change in sales mix, online and partnerships have become a much bigger part of the sales. This will significantly derisk the business in the medium term, while stores will account for more than 75% of sales. The growth in all three sales channels contribute significantly to the market share gain in a slightly declining U.K. greeting card market by volume. Our main KPI is market share by volume, which under our plan increases to around 45% in FY '25. Our share by value is smaller because our average selling price is lower than the market average, but growing due to the new pricing strategy that we're implementing. A significant driver of sales and margin in this plan is a real focus back on driving single greeting cards. Card-led missions are the bulk of our footfall, and these shoppers want a wide range of choice. Through our commercial plan, we'll start to shift the balance back in favor of cards as over the past 5 years, the product mix has shifted away from cards as the business has become more focused on average basket value. Now that the complementary ranges are established, category strategies will focus first and foremost on restoring growth in cards, with a narrowing of minor complementary categories to allow for new ranges. For the first time, we are providing margin information to the market to provide a better understanding of our product category mix impact. You can see that card margin is the highest proportion of sales and the highest margin, demonstrating the benefits of being vertically integrated, both from a design and a production perspective. Even though margins are circa 20 percentage points lower on our complementary ranges, you can see that these margins are still upper quartile if benchmarked against other retails, and this does improve our average transaction value. Core retail product margin is expected to increase by circa 4 percentage points in our plan. The drivers are renewed emphasis on card volumes, targeted price increases and better buying, which are directly margin-enhancing with further stock management initiatives. However, at a group level, the margin rate will be lower. This is due to channel mix. Both partnerships, online channels will become 5% to 10% of the group product margin by FY '25. Online will be lower margin due to the impact of extra picking and delivery costs. However, by FY '25, as we gain scale, we anticipate profitable tax percentage to be approximately in line with stores as the fixed element of costs as a proportion of sales declines. Partnerships will also be lower margin as we're selling into retailers at lower than retail price. However, at a profit before tax percentage level, this will be stronger than our stores on the basis there are no manning costs or occupational costs. We also continue to look at how we can improve our competitive advantage in our vertically integrated supply chain and ways to enhance the product margin. These include some of the areas that Andrew touched on earlier. Here is some more detail on the current channel economics. Although the economics show online being lower returns currently, as explained by FY '25, we anticipate this to be approximately in line with retail stores. In retail partnerships, our revenue is a proportion of the retail price. However, consider the percentage of the wholesale price, the profit contribution to us is over 50%, with very little in terms of variable costs with little or no capital investment needed compared to a store at around GBP 65,000. Here is a breakdown of our operating costs. Our biggest challenge is the continued above inflation growth of National Living Wage. We continue to partially offset this through efficiency programs and the use of better resource planning in store. But our store and warehouse costs as a percentage of sales will grow. IT costs will also increase as we invest in a new ERP system, online platform, stock management solutions and the necessary resource to deliver the 5-year plan. We believe we'll continue to gain rent reductions with over 900 lease events over the 5 years. Each 1% reduction in rents will equate to over GBP 400,000 of cost saving on an annualized basis. Other central operating costs will increase due to a larger and more complex business with diversification of sales channels, requiring new capabilities such as digital, B2B and data analytics. However, against these increases, there will be further business efficiencies, including distribution center consolidation, completion of voice pick, auto replenishment rollout, other in-store time efficiencies. Additionally, we've identified central cost savings of almost GBP 2.6 million by FY '25 on an annual reoccurring basis, due in part, to the investment in technologies. Therefore, we anticipate costs as a percentage of sales by FY '25 through these initiatives to reduce. The liquidity of the business is strong with an existing GBP 200 million revolving credit facility in place with plenty of headroom currently, with net debt as at the 19th of July standing at GBP 144 million and with additional access, if required, to the CCFF of the Bank of England. Good cash management has led to the current liquidity situation with the use of the following steps: Utilizing furloughing of employees; 12-month business rates -- rates holiday; deferral of rents and improved rent terms; deferral of taxes such as PAYE, NI and VAT; improved terms agreed with the suppliers; and managing, all importantly, stock intake. Other cost measures include a global ban on travel and agreeing other payment holidays with some non-stock suppliers. We have new covenants that have been put in place in this period, which are based on monthly net debt, cash burn and EBITDA for the last 12 months until June 2021. This will have then a phase return to the original covenants, all of which have plenty of room and based on current forecast. I would also point out the restriction on dividends until we are under an EBITDA pre-IFRS 16, 2x leverage, which in this environment, is a sensible position for the Board to take. Fundamentally, this remains a low-capital, high-margin model with leading and defensible position in a specialist market, allowing it to generate cash and distribute that cash to shareholders. However, due to the impact of COVID, no dividends are expected in FY '21 while we look to strengthen the balance sheet of the business. In the medium term, the business is not changing its capital policy. The leverage was targeted pre-IFRS 16 EBITDA to a leverage range of 1 to 2x. This will not change in the medium term. Although the metric will change to a more meaningful metric post-IFRS 16 on a profit before tax basis, targeted around 1.2 to 2.6x. It should be noted, in the short term, the business will operate outside of the stated policy on the basis of the COVID impact in FY '21 and partway through FY '22. Even though early trading signs are positive, it is still too early to predict the longer-term impact of the pandemic, and the Board will keep under review a range of financing options, if necessary. The Board will continue to look at the best use of capital to drive shareholder value in the medium and longer term. I will now hand back to Paul for the final summary.

It's difficult to effectively address the full output from 12 months work in a short presentation. We've not talked about every aspect of our strategy today, choosing to focus on the biggest near-term value drivers. There are other important programs, from leveraging our leading insight to drive loyalty and frequency of shop, to new format opportunities and franchising in smaller scale international markets. Several of these are now or will shortly be in trial, and we look forward to sharing more at the appropriate time. This strategy will capitalize on the leading position that this business has built over many years. We have a unique and advantage model, designing and manufacturing in-house with the benefit of then retailing cards to our own stores or increasingly through retail partners or online. Our market leadership is strong, and our brand positioning unmatched. We have the potential to deliver sector-leading insight and so create further defensible advantages. We can grow both in our core U.K. and Republic of Ireland estate through applying insights and retail disciplines that were previously absent and in new markets, both in the U.K. and abroad. This strategy will make Card Factory the first choice for cards everywhere and for all occasions. We will become recognized as the world's best greeting card retailer. We believe that this case provides a compelling rationale to invest. Card Factory is the only credible specialist in a sector that demands specialism. We're firmly in a leadership position, selling more than 3x the volume of Tesco. Through selling more cards than anyone else, we also benefit from more information, enabling us to commission the right designs and innovations from our in-house team and in turn, order the right production runs, yet still deliver scale economies. Although the core stores business has been challenged, we have described a clear pathway to growth. There is significant headroom for share gain. We are the best rated and clearly differentiated from our competitors, so we are best positioned to capture it. These actions alone will deliver significant value. However, there are new and importantly, proven sources of further value beyond the stores. The online business is prime to gain share, supported by new multichannel propositions that turn our stores estate into an even greater advantage. Partnership deals allow us both to access parts of the U.K. market that we can't access effectively and to enter markets overseas where the potential returns are very high. The business is well supported with sufficient liquidity to be confident that we will successfully navigate our way through the current crisis. It remains fundamentally a capital-light, cash-generative model with attractive shareholder return potential. We have confidence even at a time of great uncertainty in committing to the growth and profit numbers that Kris outlined earlier, returning the business to a more stable and sustainable profit trajectory. We would now like to welcome your questions, which I will direct to individual speakers as appropriate. We now have the opportunity to answer your questions that may have arisen as you've been watching the presentation. Each of the presenters are with me, appropriately socially distanced in accordance with current government guidelines. Can I ask those of you that have questions to please use the submit question option on your screen, but we already have a number of questions. And so we'll start now.

The first question from [ Andy Levers ] is for Kris Lee. What is your projected free cash flow expectations for 2021?

So in terms of the free cash flow, we're not giving forecast today in terms of the short term. Obviously, FY '21, from a cash forecast perspective, will be impacted. As we've seen in the cash forecast that we put over the 5-year period, we do expect that to increase over that period to get into circa 80% free cash flow of profit before tax by FY '25.

Thanks, Kris. The second question is also for Kris from [ Nikon Shah ]. What will be the impact on your revenue if social distancing is continued through till Christmas?

So in terms of the modeling that we've done, which we think we've had a pretty positive start in terms of the sales so far, we have reflected in our forecast assuming during the Christmas period that we'd still continue to have 2 meters distance in required. So in perspective, if that reduces to 1 meter, that could mean up to 4x the amount of people at peak times that could be in the stores, but our forecasts do reflect that based on 2 meters.

Okay. Thanks, Kris. Next question is for Andrew, which is from Kate Calvert, how much extra capacity will the GBP 17 million of CapEx deliver for print manufacturing?

The GBP 17 million of CapEx has been carefully modeled to reflect the strategy growth. So we'll certainly be able to mirror that all the way through for the 5-year plan.

Thanks. The next question is from Wayne Brown of Liberum. In targeting 10% share in the U.S, and yes, you did hear that correctly, are there any plans for M&A in time? I'll take that question. Within the strategy that you've heard us deliver this afternoon, M&A doesn't play a role. I think as far as the U.S. opportunity is concerned, we've already demonstrated with the relationship that we have with TRS in Australia that we can take the core competencies of Card Factory and export them internationally. So in the near term, our view would be that there is a similar model application in the U.S. and certainly not one that involves M&A. If I move on to the next question from Jonathan Pritchard of Peel Hunt. Given you have over 1,000 stores, does it surprise you not to be in the top 3 in customer perception for convenience? Why is that happening? And are stores in the wrong place? I think if I'll take that one, Jonathan, I think that we already rate in the top 5 considerations for consumers as far as card purchasing is concerned. We've talked about clearly widest choice, which is the single most important consideration, and we've also talked about value. Both of those play very much into our heartland. I think we've acknowledged that there is a changing way in which shoppers are now shopping. Convenience and impulse, we've addressed during the course of the presentation. And I think it's important to recognize that we still have an ambition to open stores, as Kris described, but we also have an ambition to increase the points of distribution for Card Factory by partnering with other retailers in the U.K. and internationally. So we would see, over time, our reputation as being all of the good things that we currently have together with convenience and impulse will grow. If I can move on to a series of questions from [ Faibi Blankfort ]. The first one is the 20% growth in market share in 5 years would be impressive looking forward, I guess. Why, with more store growth in the last 5 years, has the growth been only modest? And I'll ask Adam to address that.

Okay. Thank you. Yes, we will have had some existing stores where the volume will be in decline. However, looking forward, the work we're doing within the commercial area to improve our commercial returns will unlock some increased volume. So particularly, we are now optimizing all of our ranges. So by product, by store to make sure we have the best sellers cascaded all the way through our business. And the second part is the importance of new product development. So when you blend our new products with our optimized returns, this will address the volume challenge that's been asked in this question.

Thanks, Adam. Here's a question that will be for Kris back. And the question is, could you elaborate on the economics of the partnerships?

Clearly, stores remain our most profitable channel per unit of sale. Partnerships give us access to incremental market share, but with a good quality of earnings. So with a PBT of 20% on sales, and that's after fully absorbing all the relevant cost of the business development areas on relatively low Capex, I think it's important to highlight our sales are significantly lower than the retail selling prices because it's the sales price at which we're selling to our partners.

Thank you, Kris. Here's a question, I think, for Kris Lee from Geoff Ruddell. The market share chart shown today suggests that Card Factory cards are currently sold at around 40% discount to the market, given a value share of 20% and volume share of 33%. The target for 2025 suggests this discount drops to around 30%. Is it realistic to expect volume share growth to accelerate which the plan implies, whilst both cutting space growth and putting up relative prices?

Yes. Obviously, at the moment, the targeted number of stores that we've put in the plan is the 1,100 in terms of core Card Factory stores, but actually the number of distribution points over the 5-year period that we're planning to open is to get to 5,600. So as we stated in the presentation, effectively, the Card Factory stores will become the minority, not the majority in terms of locations. While, obviously, the Card Factory stores will be higher in terms of sales densities. So we do think that's achievable. And the 53% that we put in there was around the store estate partnerships, so high street retail, where the 45% is effectively the whole card market, which is obviously a more modest number.

Thanks, Kris. This is a question from [ Martin Silverman ], who is a shareholder. Teleios and Sparkasse Bank Malta have each recently been growing their shareholdings. Are they likely to or want to influence Card Factory's strategy? I clearly can't comment on behalf of those two shareholders, but I can certainly say that our relationship with both has been, as it is with all our shareholders, very open and engaging and transparent, and both have been clearly supportive over the last year or so. The strategy that we delivered this afternoon has been built by the executive team, most of whom you see around me and the Board, and we're confident it is the right strategy over the next 3 to 5 years, as we've described, and we were confident that both with the presentation, but then importantly, the delivery over the coming months and years, that all shareholders will be pleased and supportive of the business. Next question is from Kate Calvert of Investec, again for Kris Lee. How loss-making was Getting Personal?

In FY '20, as we stated in the interims and prelims, Getting Personal's performance was disappointing. And so it did go into an element of loss-making within the year in FY '20. Obviously, the bit and steps that we're taking this year is centralizing Getting Personal to Card Factory within Wakefield. So a lot of the overheads will be reduced out of the business. As a group, we will look at e-commerce as more from a group perspective rather than Getting Personal being just treated more as a subsidiary of the group. So I think that's the change in focus, but also of the reason we took the steps.

Next question is for Glyn. The question is for the online channel, what percentage of purchases included a personalized card? The comment is surely the focus should be on existing non personalized range, especially given that the 2011 acquisition is no longer stand-alone profitable.

Cards make up 84% of our baskets. And not a surprise, that's -- we're still the #1 destination for cards online as well our stores. In our 5-year strategy, we plan to triple our card range both in personalized and non-personalized cards and offer customers extended access to our store range. So over the 5 years, customers will be able to access both type of cards for all occasions.

Thanks. This is a question for Chris Beck. Do any of your partners have exclusivity rights? And could you reach agreements to supply other U.K. supermarkets?

The contract with Australia has a level of exclusivity for single everyday cards. But outside of that, we've given no exclusivity rights elsewhere.

Thanks, Chris. A question now from Jonathan Pritchard of Peel Hunt. Isn't 3% per annum like -- so like-for-like, an incredibly bullish forecast when the market is flat and the online penetration will double, and there is an albeit small chance of cannibalization from all the partnerships? Perhaps, Adam, you could address that.

Thanks, Jonathan. I'm confident through the commercial lens that we can deliver those returns. We've taken a lot of time to go through an incredibly detailed piece of analysis. So I mentioned earlier, we have looked at every card in every single store to make sure we understand the maximum returns we can get. We're making sure we grow and build the right complementary categories to support that overall offer. And when that's then blended with our approach around price and price management with new product development, I believe we can unlock the 3% like-for-like returns I referred to in the presentation.

Great. Thank you, Adam. Question again, Jonathan Pritchard again, which I will take. What happens if the new CEO doesn't agree with the strategy and the targets outlined here? As I've said consistently, the strategy that we talked about this afternoon is fundamentally one that we all believe in. We've developed it over the last year or so. The executive team, the Board have worked collaboratively to build the framework, and you will have heard this afternoon the three core themes. I and we are clear that they are the three core themes that will make the real difference in building a more sustainable, profitable growth for the business. I would openly acknowledge that an incoming CEO will want to review those three components. I'm clear that they are the right ones. Where it might vary from the current thinking would be the operational execution, but that would be, if you will, a nuance change rather than a fundamental change. So we are confident in the strategy, and we are confident that an incoming CEO would see it similarly. If I move on to the next question, which I think will be for Kris Lee. What contribution to the bottom line is the collaboration with Aldi making? And that's from Steve Underhill of SPS.

Yes. In terms of specific partnerships, we won't obviously disclose the profitability then for just sensitivity reasons. However, what we have done in the financial plan, we've give a -- the FY '20 numbers, which includes basically TRS and Aldi. Should be pointed out that, that is only part year, which is in there. And then we have give a view in terms of FY '25 in terms of what the sales and contribution are worth for the combination of channels. So -- and as Chris mentioned, that shows effectively a 20% profit before tax returns.

Thanks. There's a couple of questions here from [ Laurent Saga ]. I hope I pronounced that correctly. The first one will be for Chris Beck. Are you able to get detailed customer data from your partners?

With our Australian partner, we get an element of that where those customers take part in some of their loyalty schemes, but very little information is made available. What I would say, our partners are very good at sharing what information they do have.

Thanks. And the second question, which is for Glyn, as spend online marketing will be higher in 2025, do you have an indication of what your current and future customer acquisition costs and your lifetime customer value are?

Thank you, Paul. So historically, we've not spent a huge amount of money on marketing. Our focus is to grow awareness of our brands and to invest both customer acquisition and retention and channels that return the best return on investment.

Thanks. There's a question here for Kris Lee from Olivia Townsend of UBS. How much of the 3% like-for-like, Kris, are you expecting to be driven by price versus volume?

So within the 3%, there's a number of things, there's a number of range changes, there's a number of price changes that within that. So there's the commercial initiatives, which effectively Adam's touched on. So it's a combination of factors how we've got to that. The one thing that would overlay though is underlyingly in transaction declines, as I mentioned in the presentation, we are assuming that there is a 3% impact from transactional declines footfall decline over the 5 years, and we are expecting a one-off shift of around 6%, which is included for the impact of COVID in FY '21.

Thanks, Kris. The next question, another one from [ Faibi Blankfort ], which I'm going to extract what I think is essentially the question, which is, again, one for Kris. Do you look at your own stock, I assume our shares, as an alternative investment?

Yes. I mean, as a Board, we always assess how to make sure we give the best returns to shareholders. There's obviously a number of various different ways we can look at that. So if that relates to a share buyback, distribution to dividends, I mean, we've mentioned up the minute strength in the balance sheet in this COVID pandemic situation is our focus. But clearly, we will always look at how best to return funds, other ways of share buybacks for shareholders.

Thank you. A question here from [ Darren Bryant ], a private shareholder. As you transition the business to 80% of locations being wholesale outlets by FY '25, what controls will exist from a pricing perspective for third-party retailers recommended retail prices versus Card Factory's prices, i.e., the risk of being undercut? And how would management assess risk of cannibalization and impact on like-for-likes and profitability of mature stores? I think if I could take that question in 2 parts. The second part, Kris, if you could talk about cannibalization, and I will address the first part around the relationship with partners. Kris?

I mean in terms of the impact from cannibalization, like I said, we've done a number of different stress testing. We had the data scientists that also checked our results and came to the same conclusion that there wasn't the impact from cannibalization. So we do partner with people that we think are complementary in locations which are complementary. In terms of the pricing, in the market, then obviously, the agreements that we strike with partners are confidential. But clearly, we are focused on the fact we need to make sure we do maintain our price points don't drive a race to the bottom on pricing.

Yes. I think I would just add one small point to that. If one looks at the range of Card Factory cards that are in Aldi, you can see very clearly the price points and the quality of the card relative to that which we offer. And I'm very confident that in terms of our price horizon, both from lowest price on display, right the way through to exit price, we will always have the most competitive pricing range within the market regardless of the relationships that we deliver -- develop with other retailer partners. Next question from [ Lucy Sharma ], which I will take. As you will be the lowest cost manufacturer, will you be open to doing third-party manufacturing for competitors such as Tesco and Amazon if the opportunity arises? I think you will have heard from Andrew that we have a very ambitious plan to invest in our print craft facility. We've talked about repatriating a large proportion of our current production from overseas. The first and foremost focus for the business is to be the most efficient manufacturer of high-quality best value cards. And my experience of essentially own label, private label or white label is that, ultimately, that gets you into a capacity squeeze that then impacts on your core business. So our priority and indeed, our vertically integrated model reinforces the point that one of our core competencies is manufacturing the design in advance of manufacturing. And we want the advantage of those -- both those factors to be ours and not shared with anyone else. If I move on to another question from Lucy, which will be for Kris to answer, what flexibility will your estate have as 900 lease events come up? Can you move to turnover-related rents?

Yes. Yes, the 900 lease events. Year-on-year, we've managed to reduce the overall term to next lease expiry or break event to 2.5 years. So that, by definition, gives us flexibility. We've got some stores on flexible leases. But each year, we're renegotiating, say, 20% of that. So there's been a lot of things in the press to do with going to turn over, and one of the problems going with turnover rent is, certainly, some of the sites we've got with very low rents that we make very good money from is we then disclose the landlord effectively how profitable some of them sites are. And most -- all the negotiations with landlords, they will want to base rent. Without a base rent and just turnover base, you end up in a situation where, obviously, the property value is limited. So the way we're looking at this more is renegotiating rents as and when they come up for renewal. And like I say, on average, probably 20% of the estate we're renegotiating. And year-on-year, we're getting the lease to next -- break event to 2.5 years, which means we renegotiating them rents more frequently.

Okay. Thanks, Kris. Another question from [ Lucy ], which is one for Glyn to address and potentially, Adam, but I think initially, Glyn. It sounds like the online offer is different from the store offer. Can you explain this strategy? And how do the offers compare in size, scope and range? Glyn?

Yes, happy. So in terms of the online offer, they're actually complementary. So we make available our store range online, so across cards, balloon, party and gifting, and we supplement that with a range of personalized cards and gifts. What we see in terms of customer behavior is that customers are actually looking for a mix of both, depending on the occasion and the recipient that they're buying for. In terms of a pricing strategy, we have a single price file for our store range. So the price the customers pay in our stores will be the same online. And in terms of the personalized range, our pricing is market-leading regards to personalized cards, as I've discussed today. So a huge opportunity for us to grow sales in online with offering customers that broad offer.

Thanks, Glyn. This next one is -- it's an interesting question from [ Sven Mermans ]. And the question is, it's -- he quotes or mentions, a very interesting view on the 5-year strategy. What do you feel the reasons are behind the complete implosion of the share price? And how do you believe this negative investor view can be overturned? I think, [ Sven ], having operated for many years in the public market, trying to second-guess shareholder sentiment is not always easy. I think to the core of your question, though, we believe that the strategy we presented this afternoon, which we trailed clearly earlier this morning in the RNS, demonstrates that Card Factory is now thinking very differently about its business in the coming 5 years. We have made it very clear that we see other channels of opportunity to build both top line and bottom line growth. We talked about our partnering and our international ambition. We've talked about the acceleration of our online business. And we've talked about the authoritative position we want to reinforce in card within our retail estate. I think those three fundamental drivers of growth, underpinned by an outstanding group of people with a real focus on becoming a more efficient organization where supply chain, which is at the heart of what we do, is appropriately invested in, but we're still looking to build our capacity. I think that we've got this afternoon the beginning of what I believe and we believe is a compelling and persuasive case, that Card Factory has the potential to return to that profitable trajectory that we had in the not-too-distant past. So I think the ambition that we have is to demonstrate -- and clearly, we need to demonstrate over time that we can convert this strategy, which is very thoughtfully built with great deal of consideration about the circumstances in which we're currently trading and even allowing for the COVID effect, which clearly was unforeseen by any of us 4 months ago, we believe that this strategy will prove to the market that we have a vision that is absolutely deliverable. Can I move on to a question now from [ Connor Turner ]? In terms of 80% forecast of distribution points not being a Card Factory store, the question is, is there room for independent small U.K. retailers? My answer to that, [ Connor ], is that, clearly, we can only focus on our ambition, and our ambition is to drive the top line and the bottom line of Card Factory. And we've talked this afternoon, and indeed, in the Q&A now, about some of the measures that we're taking to really drive the Card Factory agenda, be that partnering or pricing or product or quality or supply chain. There is a very difficult market that we've all been operating in for a number of years. And the expectation is that, that will continue to be challenging. My belief is that there will be inevitably winners and losers, and my focus is on us being a winner and not taking too much time to consider the losers that there might be. So let me move on to the next question, which I can also answer. This is from [ Stuart Houston ]. When do you expect to appoint a new CEO? We made it clear that we initiated a search almost immediately. We made the announcement about the change. That process is in full train. My expectation is that it would be anything between 6 to 9 months if one takes into account the process of search, identifying the right individual and then clearly, that person may well have a notice period that they need to serve. But importantly, my commitment is to remain in Executive Chair until we have identified, appointed and [ as in roll ] a new CEO. Can I move on to our next question, which I think will be for Kris Lee from [ Laurent Saga ]? Until 2025, what range of aggregate operating cash flow are you expecting? And how are you planning to spend it in terms of CapEx, debt reduction and returns to shareholders?

Yes. So as we say, we're giving a targeted projection for FY '25 of getting to circa 80% free cash flow on PBT. In terms of the year-on-year build of that, we'd give working capital in terms of the third-party partnerships is very light. So working capital growth should be fairly minimal. Obviously, the CapEx spend is an element which is a bigger proportion, where we've said over the 5 years, it'll be circa GBP 16 million, but coming down to GBP 12 million by FY '25. So the actual free cash flow that generates, clearly, one of the things we need to do as a business is make sure we've got the debt within the range that we targeted of between that 1.2 and 2.6x PBT, and the additional free cash [ lend ] is available in terms of distribution back to shareholders. But our first and foremost piece must be making sure we secure the balance sheet in the short term.

Thanks, Kris. This next question is from Kate Calvert of Investec, and it's for Adam. How is your promotional strategy going to change in store? Are you getting rid of your multi-buy offers such as the 7 for GBP 1? And by FY '25, what proportion of your cards would you expect to be below GBP 1?

Okay. So first off, we're not getting rid of our promotional mechanics. At the moment, we have strength in our offer of 5 for GBP 1 and 10 for a GBP 1. And indeed, we're actually looking at the broadening of that promotional opportunity and see if there's anything other new and interesting that we can offer to our customers. So that's currently something we're looking at across our overall range. As we build our ranges in the years ahead out to FY '25, we'll make sure we've got that right balance of promotional and full price and then again, blending it with that right introduction of new product development. So I remain confident that our promotional strategy is correct. In relation to the second part of your question about the average selling price. Our average selling price today is just under GBP 1, but our overall frame architecture enters at 29p. We exit at GBP 1.99. We're always constantly reviewing our exit price to see if there's opportunities to grow, but we will make sure we always review ourselves on a month -- a weekly, monthly and yearly basis and move our overall architecture accordingly.

Okay. Thanks, Adam. A question here from [ Jerry Upchill ], which again, Kris, I'm afraid, is for you. Your previous RNS stated you had an obligation to use best endeavors to raise equity if debt goes above 3x EBITDA. Given the significance of the word best in law, does that mean you will be forced by the banks or Bank of England to raise equity at any price?

No. I mean, effectively, what the agreement is, is that as a business, we do need to come under that 3x to get back to original covenants, but there are a number of different options that are open to the Board. And obviously, as we see the performance of the business and the recovery, we'll assess what the best way of doing that is, but that doesn't necessarily mean it has to be via an equity rate.

Okay. Thanks, Kris. This next question has kind of a preamble. So I'll cut straight to the questions, and it relates, Chris Beck, to partnerships. So there's a recognition that developing partnerships overseas is a no-brainer. So the questions are -- now it's formally part of the strategy, how quickly can this be delivered? How protracted are the negotiations? How many new overseas partners do you expect to agree? And will these be exclusive in those jurisdictions?

Okay. So I'll answer that question a number of parts. I mean, if we use Australia as the case today, ultimately, we met with them in 2018, and we didn't get to a fully rolled out position until quarter 1 of this year. That would give us an idea of the time it takes. And we shouldn't underestimate. Whilst we've got our own brand recognition within the U.K., as we go and talk to some of the markets, there is a relationship to build and the [ trust to word ]. And in terms of demonstrating, we know the greeting card market, and we know how it can translate into the markets in which they're in. I'd like to think and current conversation support that is, as we talk to partners around the world, we do have a case study now by way of The Reject Shop in international markets, which absolutely gets us to the table quicker, but ultimately, these things will take considerable time. And that's reflected in the phasing as we go through to FY '25.

Great. Thanks, Chris. Here's a question, which I think that Glyn can answer. Any specific -- and it's from [ Nikon Shah ]. Is there any specific reason why we don't have a loyalty scheme in place which could improve customer insights?

Thank you. So as part of the strategy, we've alluded to that all the e-commerce and store pilots that are underway, we're collecting and storing that customer information. We have over 2.5 million transactions in our store each week. Our plan is to look at initiatives in which we can engage customers, that we can share with them new ranges and promotions and from the mobile app development, how those customers can shop online or in store. Off the back of all of that, there will be a retention program that will allow us to talk to those customers. The definition of what that looks like as a mechanic, we'll look to investigate further over the coming months.

Okay. Thanks. Here's another question from [ Darren Bryant ], which essentially is with social distancing assumptions of 1 or 2 meters, what is the percentage impact on anticipated maximum volumes of customers that stores can process in the key Christmas weeks? Kris, could you comment?

Yes. So on the modeling that we did on this, we effectively look supply side, demand side. So we've looked in terms of what we thought in terms of footfall and the impact from that on the demand side and then supply side in terms of the 1 and 2 meters modeling in terms of the people, the customers that we could get through the store. So I won't give a specific percentage because like I said, we're not giving a profit forecast for this year, but we have modeled that for the Christmas period. And then forecast effectively mean that we're comfortable within the covenants that we've currently got with the banks.

Okay. There's two further questions from [ Darren ] that I think aren't necessarily linked to the Christmas question. And they're both for you, Kris, you'll be pleased to know. The first is what's the realistic maximum level of like-for-likes? I'm assuming that would be over the 5-year horizon. And at what level does the company have covenant issues?

So the -- in terms of the first part, effectively, the way we're looking out the 5 years is obviously there's a significant decline in FY '21 off the back of the closures. The like-for-like performance, which we've put in the RNS this morning, where like-for-likes were minus 21.6% since reopening. Then effectively, we've got a V, which then shows the recovery in FY '22. And then we get into an average, if you like, on a like-for-like sales basis for the remaining 3 years of circa 3% of where we think the business will be. So that's the shape, if you like, how we've modeled the sales in terms of the 5-year period.

Okay. And I think that the supplementary question was do we have any covenant issues?

So no, I mean, of the minute, clearly, this comes with [ the known ] -- we don't know the longer-term impact like nobody does in terms of what the pandemic impact will be. We still got Christmas trade, and it's come like all retailers. But certainly, the current position is we're looking to get back to normal covenants by some June next year, which is basically on the usual stock covenants, which will be EBITDA to leverage because these were pre-IFRS 16. This is the 5-year agreement on the revolving credit facility and also interest covenants.

Okay. Thanks, Kris. So I have another question. We're trying to be frank. Just at the moment can't read. Here we are. This is from [ Steve Gray ]. Card Factory's core customer seems to be much more likely to have an Aldi Iceland as the style demographic rather than a Waitrose, Sainsbury's one. Are there any plans to position the brand differently in order to attract a higher number of more affluent customers who are likely to be higher spenders on cards? I'll take that one, [ Steve ]. I've said consistently since I joined Card Factory about 18 months ago, that there's absolutely no reason why we cannot be the Aldi of greeting cards. I think last Christmas, the proportion of Waitrose shoppers that shopped towards Aldi was approaching 40% or 50%. Our ambition is that we will have a range of cards. And in his presentation, Adam touched on the quality and value, the appropriate designs, the appropriate verse, the appropriate structure, the appropriate materials, so that we can present a more compelling offer to, if you remember, Pierre's piece, Frank who's looking for value, far less so than he's looking for quality in the kind of card that he wants. So I believe as we develop our proposition, again, reiterating the point to be the authoritative leader in card, which Adam made very clearly our #1 priority, I do believe that we'll have the opportunity to present an offer that is more compelling and more wide reaching to all of our segments, the 10 customer segments that we talk about. So I do believe we have that opportunity and without sounding too jargony, what we need is to help people reappraise the Card Factory brand and essentially that will be driven by the quality of the card, the wide choice of the card and then for many people, the third factor of value comes into play. Thanks. At the moment, I have no further questions. So we're now just approaching 4 o'clock. I think we'll draw that to a close. So everybody, thank you so much for joining both the presentation and the Q&A. And I'm sure that there will be further follow-ups as we go through the coming weeks and months. Thank you very much.